INTERNATIONAL JOURNAL OF BUILT ENVIRONMENT AND SUSTAINABILITY

Published by Faculty of Built Environment and Surveying, Universiti Teknologi Malaysia

Website: http://www.ijbes.utm.my
IJBES 6(1)/2019, 44-50

Application of direct payment clause 30A.0 of the Asian International Arbitration Centre (AIAC)
Standard Form of Contract (With Quantities)
Nur Emma Mustaffa, Hamizah Liyana Tajul Ariffin, Norazam Othman, Shahida Shaima Shamsudin
Department of Quantity Surveying, Faculty of Built Environment and Surveying, Universiti Teknologi Malaysia, 81310 UTM Johor Bahru, Johor, Malaysia
Email: b-nuremma@utm.my

History: ABSTRACT
Received: 14 November 2018
Accepted: 1 January 2019 Conditional payment such as “pay when paid” or “pay if paid” can create negative chain effect on
Available Online: 30 January 2019 the parties in construction projects, resulting in delay on the completion of a project,
Keywords: adversarialism and may affect a contractor’s reputation. Asian International Arbitration Centre
(AIAC) has launched a standard form of contract which is Construction Industry Payment
Payment Dispute, Direct Payment, Standard form of Adjudication Act (CIPAA) compliance with the aim to reduce payment issues. The aim of the
contract, Asian International Arbitration Centre,
research is to identify whether the clause for “direct payment under CIPAA 2012” of the new
CIPAA.
AIAC standard form of contract can facilitate problems in direct payment . In achieving the aim
Corresponding Author Contact: of the research, five legal cases were analysed and thirty questionnaires forms were distributed.
b-nuremma@utm.my
Legal cases analysis findings highlighted that the major reasons of the direct payment issue being
referred to court is due to the validity of the direct payment agreement between the disputant’s
DOI: parties. Based on the cases heard before CIPAA enactment, the findings show that out of the
three cases, the disputants went to litigation because of the legality of direct payment
10.11113/ijbes.v6.n1.329
agreements. Most of the agreements were made orally. For cases analysed after CIPAA was
enacted, the findings show that the disputant parties do not opt for adjudication and that the
main contractors try to mitigate their responsibilities to the employer. The results from the
questionnaires distributed established that, the direct payment clause could be successfully
adopted for future use of the industry. Eventhough the AIAC standard form of contract has
been formally introduced to the industry, but it is not widely used. From the findings of the
questionnaire, it shows that with encouragement and support from the industry, direct
payment clause of AIAC standard form of contract have the potential in reducing payment
issues in the future. With the remodeling of standard form of contracts that are available in
construction industry to be CIPAA compliance, it is hoped that this move may scale down the
prevalent payment issues in Malaysian construction industry.

1. Introduction great initiatives in avoiding these problems. The introduction of Asian

1.1 Background of study
For decades, the construction industry has been plagued by various
constraints encompassing issues such as cost and time overrun, poor
quality and lack of sustainability (Bruno et al, 2017). Many factors
contribute to the success and failure of a construction project and it has
become an interesting arena for research (Yong and Mustaffa, 2017).
One of the common area for research is on payment, as it has been the
root of every dispute in the construction industry. Sometimes, main
contractor feel they have an upper hand and power over the
subcontractors. The reason behind this is possibly caused by the
tendency of the contractors to ignore their obligations to pay the
subcontractors in consideration of their poor financial cash flow
condition. Subcontractors are entitled to be informed about their
payment especially in recovering them. There are many dispute
resolutions in solving this particular problem such as litigation,
arbitration and adjudication. On the same wavelength, many institutions
such as PAM, PWD and CIDB standard forms of contract have taken
Institute of Arbitration Centre (AIAC) standard form of contract which
is CIPAA compliance may help in reducing payment issues.
1.2 Statement of problem
Before CIPAA was enacted, the construction industry has been using
PAM and PWD standard form of contract. In PAM standard form of
contract, Clause 27.6 provides that the employer may deduct the
amount paid to the subcontractor from the amount payable to the
contractor. The same provision can also be found in PWD standard
form of contract, under Clause 61.2(a). The two clauses in PAM and
PWD standard forms of contract require parties in dispute to go
through mediation and arbitration proceedings if any dispute pertaining
to them cannot be solved. There is a provision in PAM form which
gives the option for it to be solved by adjudication. However, there are
no specific provisions in PAM and PWD that directly relate the matter
to CIPAA. Since the existing standard forms of contract were issued
prior to this Act, the Asian International Arbitration Centre (AIAC) or
formally known as Kuala Lumpur Regional Arbitration Centre
(KLRCA) has taken the initiative to introduce a new standard form of
44
contract. This form which has been formally launched is to address the
prevalent issue of payment in a more explicit manner. These new
standard forms of contract are claimed to be more user friendly and
CIPAA compliance. This could feasibly be the ultimate solution for
direct payment problem. Since the form is relatively new in the
industry, the players may be reluctant to use the new form.
1.3 Research objectives
The aim of this research is to identify whether the clause for “direct
payment under CIPAA 2012” of the new AIAC standard form of
contract can eradicate the problems arising in direct payment. In order
to accomplish the aim, these objectives need to be pursued; firstly is to
determine the common reason(s) that leads to problems in direct
payment from legal perspective and secondly to investigate the
awareness of construction industry players of the new direct payment
Clause 30A.0 in AIAC standard form of contract (with quantities).
1.4 Significant of study
This research is important in order to help the clients, contractor and
subcontractor to know of their rights and obligations arising in the
context of direct payment under the new standard form of contract
AIAC. In addition, it would shed some light guiding the construction
players in solving and protecting their rights to attain healthy cash flow.
It is hoped that the findings of the research would encourage the
authorities to review their standard form of contracts and include the
new provisions that might effectively help in remedying the problems
concerning direct payment.
1.5 Scope of study
The main drive of this research is on discovering the perception of the
construction industry players on the direct payment provisions with
regards to the new standard form of contract released by the AIAC.
Court cases have been referred to in identifying the direct payment
problems occurred and the solutions to it. This research have been
limited to construction cases in Lexis Malaysia under PAM 2006, PWD
2010 and CIPAA 2012, problems on direct payment that occurs among
the construction players and perception on the new AIAC standard form
of contract towards the direct payment clause.
2. Payment in Construction Project and Related
Issues
2.1 Definition of payment
Payment is the amount of money that is going to be paid to the
contractor as in the regular interim payments which are progressively
paid throughout the duration of the contract (Jane, 2018). Certain
procedures enable the parties to calculate the amount, the due date and
the final date for payment of any payments falling due under the
contract.
2.1.1 Payment clauses in contract documents
In PWD 203A Version 2010, payment clause which is stated in the
provision of this contract falls under Clause 28, “payment to contractor
and interim certificate”. Likewise, in PAM 2006 standard form of
contract, the clause falls under Clause 30, “certificates and payment”. In
both of these standard forms of contract, each of the clauses explain
when the employer’s representative needs to do valuation and the
clauses lay out the procedures of payment that binds the parties to the
contract respectively.
2.2 Obligation of paymasters
for the employer to pay the contractor accordingly for the completed
works. According to Tony (2018), in the event of valuation of work
completed, the regular basis of timely valuation commonly has been
stated in advance. The main purpose of the contract is for the
contractor to deliver the output (buildings) and for the employer to pay
upon completion of work done. It is essential for the paymasters to the
subcontractors to know that every rights of their nominated and
domestic subcontractor should be paid accordingly for the works that
they have done. Generally, all parties’ cash flow interest must be
protected.
2.3 Payment issues
Payment problems are not new in construction industry. Not only
nationally but globally, payment is considered as one of the main issues
that have significant influences no matter what industry a person is in.
According to European Payment Report (2013), payment is an issue of
concern in any industry.
2.3.1 Factors contributing to payment issues
According to Azhari (2014), there are ten factors that contribute to
payment issues. The factors are as below
a. Paymaster’s Poor Financial Management
b. Paymaster’s withholding of payment
c. Conflict among the parties involve
d. The use of pay when paid clause in subcontractor contract
e. Contractual Provisions
f. Disagreement on the valuation of work done
g. Late in certification
h. Duration of project
i. Local Culture or Attitude
j. Technical Problems
2.3.2 Impact of payment issues
There are a lot of impacts that can be caused by payment issues.
According to a report by CIDB (2006), the most common effects of
non-payment and late payments are the stress created on the
contractors, financial hardship and cash flow problems. According to
Mohd Khairul (2016), contractors’ cash flows are going to be affected
due to retention fund, payment term to supplier and subcontractor,
advance payment, delay payment and frequency of payment.
Sambasivan and Soon (2007) stated that any disruption within
the flow of cash will cause monetary hardship and even causing failure
lower down the contracting chain. Title of the goods will usually be
transferred upon payment and late or non-payment would lead to
shortage in material (Sambasivan and Soon, 2007). According to Azhari
(2014) the impacts are as below:
a. Creates negative chain effect on other parties
b. Results in delay on completion of project
c. Leads to bankruptcy
d. Project Delay
e. Affect the contractor’s reputation
f. Profitability of the project
It can be highlighted that the payment issues that comprise of retention
of title, delay in payment, failure of payment, late and non-payment
have persisted in the Malaysia construction industry for quite some time
now, but have yet to be fully resolved.
2.4 Clauses in standard form of contract for remedies of
payment issues

Payment does not require submission of claim because it is an obligation

45
In Clause 27.6 PAM 2006, the Architect may ask the contractor to
supply him with reasonable proof of the contractor’s claim that he had
discharged the previous certificate to the Nominated Subcontractor’s
payment. If the Contractor fails to do so, the Architect may certify and
the Employer may pay such amounts directly to the Nominated
Subcontractor and deduct the same amount from the Contractor
Similarly in PWD 2010 form, the normal procedure of payment from
client to the contractor falls under Clause 28.3. Regarding the direct
payment to the subcontractor, the provision falls under Clause 61.1,
which cover the amount that being paid by the Government directly to
the Nominated Subcontractor shall be deemed as payment to the
Contractor by the Government under the virtue of the contract.
2.5 Direct payment
Emmanuel (2015) stated that problem in late and unfair payment could
be influenced by the main contractor and subcontractor’s relationships.
Based on Supardi (2015), there are three principle methods in paying
subcontractors comprising of:
2.5.1 Payment upon certification
Under the payment system, the main contractor receives payment
through interim payment certificates and it is a conditional precedent for
the main contractor to pay the subcontractors. It is not appropriate for
the main contractor to default the payment to the subcontractor after
the honoring period of certificate has lapsed.
2.5.2 Direct payment from the employer
Other than the payment upon presentation of the certificate, direct
payment is another form of payment in which the payment is being paid
directly to the subcontractor by the employer. As far as the employer is
concerned, the subcontractor’s payment may be apportioned from the
Interim or Final Certificate received by the main contractor.
2.5.3 Contingent payment or conditional payment
The last principal method of payment is the contingent payment or also
known as under various terms such as “pay if paid” or “pay when pay”
and “back to back” provisions in paying the subcontractors. According to
May and Siddiqi (2006), the main contractor may transfer the risk of
non-payment by the employer to the subcontractor in order to protect
their interests. There are a few cases of direct payment that have
highlighted contingent payment:
a. Asiapools (M) Sdn Bhd v IJM Construction Sdn Bhd [2010] 3 MLJ 7
b. Seloga Sdn Bhd v UEM Gynisys Sdn Bhd[2007] 7 MLJ 385
c. Antah Schindler SdnBhd v SsangyongEngrng& Const. Co Ltd [2008] 3 MLJ
204
2.6 Direct payment under PAM and PWD
Under PAM 2006, Clause 27.6, where in case that the Contractor does
not pay the Subcontractor; the contractor must provide proof within 14
days upon Architect’s request. In the event of the Contractor failed to
provide such proof, the Architect may certify for the employer (obliged
or not to obliged) to pay such amount directly to the Nominated
Subcontractor and deduct the amount directly from the Contractor.
Similarly under PWD 2010, under Clause 61, after the issuance of
Interim Certificate under Clause 28 or Final Certificate under Clause
31, if the contract states the amount to be paid directly to the
Nominated Subcontractors or Supplier, the amount shall be deducted
from the payment due to the Contractor. It gives security to
Government’s interest where the contractor will not render the
Government in any way liable to Nominated Subcontractor or Supplier
(PWD 2010, Clause 62).
2.7 Worldwide perspectives on direct payment
In another part of the globe, the United Kingdom’s Housing Grants,
Construction and Regeneration Act 1996 finds that the provision of
conditional payment is considered unsuccessful with the exception
when there is bankruptcy in the contractual chain. According to Sushani
(2005), even though these initiatives have been taken, payment
problems may still exist. The same occurrence and reports can be seen
in the literature in UK (Reilly, 2008), Australia (Barry, 2010) and New
Zealand (The Dominion Post, 2008) that pointed to the fact of
liquidation could have effect the delayed payment.
2.8 Construction Industry Payment Adjudication Act 2012
(CIPAA 2012)
According to Loshini (2017), Construction Industry Payment and
Adjudication Act (“CIPAA 2012”) were enacted by the Malaysian
Parliament and came into action on 15 April 2014. The introduction of
a statutory adjudication process was made with a declared intention to
improve payment problems in the construction industry. Small
contractors and subcontractors may be facing with cash flow problems
and they would be financially weak if they are not paid by employers or
in some cases the payment could be unfair or untruthful. In another
example, the main contractor could possibly have the upper hand and
refuse to pay their subcontractors. The Act identifies this issue and
made provisions to address this disputes.
2.9 Adjudication
Adjudication is a form of dispute resolution that was developed back in
mid 2000 as an alternative to arbitration in the construction industry.
Most of the standard form of contract adapts adjudication as its primary
alternative dispute resolution (Dancaster, 2008; Seifert, 2005; Teo,
2008).
Under CIPAA 2012, the clause for direct payment is provided under
Section 30A. Even though in PAM 2006 and PWD 2010 have
provisions for adjudications and direct payment, but it does not have
specific provisions for direct payment clause that refers to CIPAA. For
example, in PAM (Rev. 2006), Adjudication and Arbitration are put
under the same Clause 34. There is no mention on adjudication in any
of the clauses in PWD 2010, only arbitration was mentioned in the
standard form of contract. The same can be seen in CIDB 2000 form.
The exclusion of adjudication could be because these two forms have
been in used before CIPAA 2012 takes its operative effect. However, in
KLRCA newly launched form, specific provisions in CIPAA 2012 were
mentioned. The provisions for extension of time (clause 23A), loss and
expense (clause 24A) and direct payment (clause 30A) of CIPAA 2012
were included in this form.
All of the procedures under CIPAA may help in solving all the payment
disputes between the construction players. Maybe this is the reason
why AIAC has made their initiative to do a new standard form of
contract as one of the solutions.
2.10 Introduction to AIAC
Kuala Lumpur Regional Centre for Arbitration has been established in
1978. Growing strong to 40 years later in 2018, the ideas of
Alternative Dispute Resolutions are no longer alien. KLRCA has strived
through 40 years with great effort in introducing ADR and educated
users with the help of Bar Council and Construction Industry
Development Board (CIDB). The initiatives include the amendments to
the Arbitration Act 2005 as well as upgrading the role of the KLRCA
(Lim, 2009). At present, the Malaysian government has undertaken
several reform measures to improve the alternative dispute resolution.
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In celebrating the 40th anniversary of KLRCA recently, Datuk Sundra
Rajoo has launched a new KLRCA new standard form in accordance
with CIPAA compliance and also changed the name of KLRCA to Asian
International Arbitration Centre (AIAC) to attract more international
parties to arbitrate with them. This move is with clear hope that
Malaysia would be acknowledged as the number one arbitration centre
worldwide.
2.11 Background of the AIAC standard form of contract
The AIAC standard form of contract is perceived to offers a better way
to address the problems and close the gaps by giving solutions that
complies with CIPAA. Pursuant to that, AIAC would be expected to
ensure that the standard form of contract is up to date and align the
updates with the latest laws and construction court judgment in the
Malaysian’s construction industry. In such cases, it would enable the
disputants’ parties to easily resolve dispute while the works are still in
progress. AIAC is also anticipated to ensure that the new standard form
of contract will give benefit to both the employer and contractor and
similarly perceived to be a user friendly form. It claims that there are
over 60 expressions and words that provide clarity to the contract such
as “Clause 33.0 Fossils, Clause 8.30 Weather Conditions and Clause
23.8(c) (viii) Antiquities”. There are some key features that are claimed
by AIAC (2017) including clarity, integrity, accountability,
transparency, continuity and certainty.
To summarise the discussion, the academic community has extensively
explored the payment issues and usage adjudication statutory in their
research. However, little research has been conducted to show the
significance to include the clause of direct payment under the CIPAA
2012 in standard form of construction contract. To address this gap, this
research has been designed to investigate the level of perception of the
industrial player on the inclusion of the clause of direct payment under
CIPAA in the new AIAC standard form of contract and the other
standard forms.
3. Methodology
3.1 Introduction
This part of the discussion will primarily be based on research process,
tools, data collection and analysis of data. It is based on two modes of
research strategies centering around legal research based on analysis of
the legal cases and survey conducted on the industry’s players to gather
information on their views regarding the new AIAC standard form.
3.2 Data collection
This research adopts the descriptive study approach to describe the
variables and investigative enquiries of various sorts. The descriptive
statistics would furnish the frequencies, the mean and the standard
deviation of the set of data. Facts or information that are already
available would be analysed further to create a crucial analysis of the
content. In this research, legal and quantitative approaches have been
used to achieve the objectives.
3.2.1 Legal research
The facts were then filtered through by limiting the selection to cases
that are more recent which have been reported from the year of 2010 to
2017. The cases were derived from search conducted through Lexis
Malaysia using keywords “direct payment and building contract”. The
cases were then further filtered into the cases that adopts building
contract set out under professional bodies such as Jabatan Kerja Raya
(JKR), Pertubuhan Arkitek Malaysia (PAM) and Construction Industry
Payment Adjudication Act (CIPAA).
3.2.2 Quantitative research
A set of questionnaire was distributed to achieve the second objective of
the current research. The questionnaire responses are then used to
investigate the perception of inclusion of the direct payment clause
under CIPAA 2012 of AIAC standard form of contract. Questionnaires
were sent to all participants throughout Malaysia using the online
custom form and were distributed to the industry players. The target
sampling is and not limited to thirty targeted respondents.
3.3 Data analysis
The first objective has been concluded through the legal cases analysis.
The selected cases have been organized in chronological order,
according to the years, from the previous years to most recent. The
cases have been studied from the point of view of the facts of cases,
judgments passed by the courts and the findings of the cases. The cases
have been further scrutinized to investigate their relevancy in the
introduction of AIAC standard form of contract. Data that addressed
the second objective was analysed using the descriptive analysis. After
the data has been obtained through questionnaires, they are then coded,
edited and entered into a database.
3.4 Research limitation
There are several limitations of the research. First, the industry chosen
is only the construction industry and the respondents are from the
related companies in the industry in Malaysia (as this research focuses
on the CIPAA 2012 that came into force to govern Malaysia). Thus,
the results from this research may not be generalized to other countries
which have different political, cultural and economic factors. Second,
this research only examines the documents involved in the contract
documentation and the focuses directly on documents and records that
are related to payment issues or within the application of direct
payment clause in CIPAA 2012.
In order to carry out this research, the theoretical and technical
assumptions underlying the research methodology in the direct
payment concept field were review. In addition, a discussion of the
research design for this study was made. On the research strategy, legal
case studies have been adopted. This is then further combined with
research techniques where the respondents responds were observe
through questionnaires and documentation analysis.
4. Data analysis, results and discussion of findings
4.1 Introduction
This part of the paper will be discussing the emerging role of the new
AIAC standard form of contract in the context of direct payment as the
method in solving payment issues. The legal case analysis will be
discussing on the common reasons for direct payment under PAM
2006, PWD 2010 and CIPAA. This is in order to achieve the first
objective of the research. The data for the research have been obtained
from cases extracted from Lexis Malaysia database. The cases selected
were from the year 2010 to 2017. The cases described and analysed
have been selected based on the common reasons of direct payment
occurrence. The descriptive statistical analysis will discuss on the data
collected from the questionnaire distributed to 30 respondents. The
interpretations of the said data will be thoroughly discussed
accordingly.
4.2 Legal case analysis
It can be observed from the legal cases presented in Table 1 that they
47
 Table 1 List of Cases
No Cases Reference Number
1 Westform Far East Sdn Bhd v Connaught Heights (2010) 3 MLJ 459
Sdn Bhd & Ors
2 Rira Bina Sdn Bhd v GBC Construction Sdn Bhd (2011) 2 MLJ 378
3 Desa Samudra Sdn Bhd v Bandar Teknik Sdn Bhd (2012) 1 MLJ 729
& Ors
4 Pembinaan Juta Mekar Sdn Bhd v Sap Holdings (2014) 11 MLJ 821
Bhd & Ors
5 Sigma Elevator (M) Sdn Bhd v Isyoda (M) Sdn (2016) 10 MLJ 635
Bhd & Anor

have several similarities pertaining to direct payment issues. The findings

also reveal that there are few limitations to direct payment clause in
AIAC standard form of contract. In general, it can be highlighted that
the cases were arguing on the existence of contractual agreement of the
direct payment. From the cases, direct payment agreement was in
existence regardless if it is expressly written or orally agreed. In
Pembinaan Juta Mekar Sdn Bhd v Sap Holdings Bhd & Ors (2014) 11 MLJ
821, with consistent action of the employer in paying the subcontractor
directly for 2 years, court held that there were contractual relationship
exists. In addition, even though the agreement was made orally, with
enough evidence, subcontractor may exercise their rights to get the
payment.
There were some limitations that can be observed from the cases above.
Contractor tends to mitigate their responsibility to third party regardless
towards the employer or subcontractors. The possible explanation for
this is the contractor may not understand the full concept of direct
payment. There were possibilities that the contractors are aware of the
concept however they try to manipulate and take advantage on the
provisions.
4.3 Descriptive statistical analysis
A set of questionnaires were completed by thirty respondents. The data
have been collected to investigate the level of awareness among the
construction industrial players on the introduction of AIAC standard
form of contract. More importantly, data collected are also for the
purpose of observing the perspective of the construction players towards
the direct payment clause under the AIAC standard form of contract
(with quantities).
4.3.1 Awareness on the AIAC standard form of contract
The question asked on whether the respondents were aware of the new
AIAC 2018 standard form of contract. Less than a third of the
respondents (24%) indicated that they were aware of the existence of
AIAC standard form of contract. Unfortunately, despite its objective to
resolve the prevalent payment disputes, more than two third of the
respondents (23 people) indicated that they were not aware of AIAC
standard form of contract.
The result may indicate that the AIAC standard form of contract is yet
fully embraced by the construction industry. The initiatives taken by
AIAC to organize road shows to promote the standard forms of contract
are inadequate to increase the awareness of the forms’ presence in the
industry. This could possibly be due to lack of communication channel
that may not reach out to much smaller players of the industry.
Subcontractors are the critical parties that are expected to face higher
disadvantages when payment disputes arise. As the data have indicated
that there are a lack of awareness in the adoption of AIAC standard form
of contract, more promotional activities need to be made in order for
the subcontractors to be aware of the existence of the new form.
4.3.2 AIAC 2018 standard form of contract in future project
The following question asked was to assess the potential of the
Figure 1Awareness of AIAC standard form of contract
Figure 2 Usage of AIAC standard form in future project.
respondents to use the AIAC standard form of contract in the future.
Only four respondents confidently answered positively, while another
five respondents indicated that they would not expected to be using the
form. Two third responded that they may be using the form in their
future projects.
On a positive remark, the positive response promises that the future
use of this form looks bright. On the other hand, majority of the
responses give different indication to the future use of the form. They
are either indecisive because they have not been fully exposed to the
form, or that they could be skeptical on the practicality of the form.
Another reason contributing to the “uncertain” responses given by the
respondents could also be expressed by the smaller numbers of direct
payment cases that are resolved with the provisions provided in the
form. Similarly, the negative response indicates that the respondents
did not have trust in the new form and there are possibilities that they
are complacent with the forms that have been established in the
industry. Relatively, the reasons behind these responses are further
discussed in the analysis under section C of the questionnaire.
4.3.3 Direct Payment (Clause 30A.0) AIAC 2018 standard form of contract
can help in reducing “non-payment” or “paid when paid” issues
Following the previous question, the next question was to examine the
respondents’ agreement on whether the direct payment clause would
be able to assist in eliminating or reducing the payment issues. This
response would give an indication on the potential success of the direct
payment clause on its full implementation. The RII is calculated at an
index of 0.77 for this statement. The result reveals that the
respondents, though they agree that the direct payment clause can help
in reducing the “non-payment” or “paid when paid” issues, there is a
possibility of some reservation on their part on its success. This could
be due to the fact that the AIAC standard form of contract is still
considered new in the industry and has not been used widely.

48
4.3.4 Direct payment clause of the standard form contract will change the
construction industry payment culture in future
The subsequent question is to gauge on the respondents’ level of
agreement on the statement that direct payment may have an effect in
changing the payment culture that has been inculcated in the industry.
The response that inclines positively towards the statement would give
an indication that the direct payment clause would have a chance in
setting a new culture of payment in the construction industry. The RII
reveals an index of 0.72 which is interpreted as “Agree”. This result
indicates that the direct payment clause has the potential to change the
payment culture in the industry On the contrary, there is a small chance
that the change in culture would lead to a bigger problem in the
construction industry. One of the possibilities is the mitigation of
obligation to pay the subcontractors by the contractors. This potential
problem could be due to the fact the direct payment clause is rather
vague on the types of payment that are covered under the clause.
4.3.5 For future improvement of the payment and claim system, all standard
form of contract should be CIPAA compliance
The final question in the questionnaire was targeted to assess the
probability that all standard forms of contracts should be improved and
be CIPAA compliance. The response would indicate if the AIAC
standard form of contract would be successful as a model form that
complies with CIPAA and can be benchmarked as payment solution in
direct payment issues. From the RII analysis, the index for this question
was recorded at 0.79. This shows that most of the respondents agree
with the idea of remodeling standard forms of contracts that are
available in construction industry to be CIPAA compliance. It is likely
that the respondents could identify the importance of CIPAA in solving
payment related issue especially for Subcontractors who are directly at
the disadvantage of payment issues. All regulatory bodies such as CIDB,
PAM and PWD should take the initiative to upgrade their standard form
of contracts and adopt CIPAA into their contracts. They should imitate
AIAC’s move immediately since their current forms are yet to adopt
CIPAA. The extra effort in improving the standard form of contract may
give a break through to the construction industry players who are
reluctant of changes.
On the legal research, out of the five cases, only two cases were heard
after CIPAA were enacted. However, both cases do not opt for
adjudication as the mode for their payment dispute resolution method.
Most of the cases were heard in High Court, a couple of cases went
through Court of Appeal and one of the cases went to Federal Court. It
is time consuming and costly process to go have a case being heard at the
court. Instead of a long-awaited process in litigation, AIAC has made
ready the solution to direct payment problems by producing standard
form of contract with CIPAA compliance. The standard form
synchronously compliments CIPAA’s purpose in solving and avoiding
short-term cash-flow problems during project delivery. On the
contrary, it is also observed that the cases showed certain limitations in
the AIAC direct payment clause.
One of the set back is that the direct payment clause does not clearly
define the terms of “any payment”. The term “any payment” in clause
30A.1 in AIAC could lead to misuse and abuse of the clause. From the
responds of the questionnaire distributed, all thirty respondents have
given a very good cooperation in assisting this research process. Most of
the respondents are also well qualified in terms of their education level
and experience in working. Based on the findings, the direct payment
Clause 30A.0 in AIAC standard form of contract has a very bright future
and gives big impact in the construction industry payment system.
5. Conclusion and recommendations
5.1 Issues pertaining direct payment
Based on the legal case analysis findings, the major reasons of the direct
payment issue being referred to court is the validity of the direct
payment agreement between the disputant’s parties and the fact that
other dispute resolutions methods apart from litigation have not been
chosen. Without express agreement on direct payment clause, these
can jeapordise subcontractors’ to express their rights to be paid by the
main contractors. In addition, from the findings, the even though some
of the cases were held after CIPAA enactment, the disputants does not
opt for adjudication as the payment dispute resolution method.
Meanwhile, the research has managed to achieve the objective in
investigating the perception on the inclusion of the direct payment
clause 30A.0 in AIAC standard form of contract. The research has
identified that the clause could be successly adopted for future use of
the industry. Even though with the lack of awareness such form existed
and the understanding direct payment concept, the AIAC standard form
of contract were not fully utilize. Nonetheless, the findings may
highlight that there is a reluctant on the part of the industry players to
change from what they are comfortable with to something new.
5.2 Possible steps in promoting direct payment clause in AIAC
standard form of contract
To enhance and elevate the usage of AIAC standard form of contract,
AIAC could have a wider and extensive promotion on the forms. Since
AIAC is now recognised internationally, it is only appropriate to spread
the exposure internationally. AIAC may also be a bench mark for local
standard form of contract to emulate. In addition to that, it is
recommended that for the parties concern to have more trainings and
conferences to educate them on this latest standard form. From the data
obtained, the respondents are from younger generations who are open
to challenges and willing to accept changes. This contributes to
probable success of the AIAC standard form of contract.
The more educated construction players on the AIAC standard form of
contract, the more successful it would be in the future. It is hoped that
the findings can be an eye opener for the related construction industry
players on the awareness of direct payment in scaling down the
prevalent payment issue in the Malaysian construction industry.
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